Five important investment concepts

These time-tested investment concepts are designed to help you select the funds that will allow you

achieve your financial objectives while matching your attitude to risk and return.

Your attitude to risk

Investing typically involves a trade-off between risk and reward.

What factors affect risk tolerance?

• Your age
• Stage in life
• Personal temperament
• Financial goals
• Planning time horizon and investment experience each play a role.

As an individual, your attitude to risk will often vary from one person to the next. As a concept the term ‘risk’ is often met with some nervousness, but when it comes to investing, taking some risk may be necessary to obtain the level of return you need.

There are many factors that need to be considered when assessing your attitude to risk. We would recommend that you speak with your Financial Adviser and use the ‘Aviva Risk Profiler’ to assess your attitude to risk.

Don't put all your eggs in one basket

We’ve all heard the old saying; don’t put all your eggs in one basket. The same can be said of your investment portfolio. Diversification is an investment technique that involves building a portfolio of funds that includes options both across and within different asset classes. Ideally, you would like to hold the top performing asset class each year, whether that’s equities, bonds, cash or properties. However, as history has shown, there is no way of predicting what asset class will be the star performer each year. That is why diversification is key. By balancing risk and return through diversification, you can:

• Participate in market gains.
• Minimise the effect of market downturns in any one asset class.
• Achieve more consistent and steadier returns over the long-term rather than ‘chasing winners’.
• Reduce the risk profile of your portfolio.

Don’t ignore Inflation

Inflation is simply a measure of the increase in the price of goods and services in a region. Inflation can seriously erode the purchasing power of your investments. Investing in equity and property assets has historically provided the best insulation against the impact of inflation.

Take a long-term view

Establishing financial goals and staying the course during market highs and lows can help you achieve your investment goals. Time, not timing, is the most important thing to consider when investing. Of course we would all like to sell when the market has peaked, just before the market moves downward and then get back into the market at the bottom, just before the recovery begins. However, getting this timing exactly right is near impossible, even for seasoned investors. Historically, markets have always recovered following periods of market decline to deliver strong long-term returns. To achieve your long-term financial goals, the best time to invest is as soon as possible so your money has plenty of time to grow.

Get advice from an expert

Financial advisers can provide many levels of assistance:

• Help you identify your financial needs and set short and long-term investment goals.
• Assist you in building a portfolio of investments that meets your goals, objectives and risk tolerance.
• Set realistic expectations for your portfolio by explaining the risks and rewards of each investment. Monitor your portfolio and help you evaluate its performance.
• Regularly review and adjust your portfolio to reflect changes in your financial needs and economic conditions.